BILL ANALYSIS C.S.H.B. 3164 By: Seidlits 05-06-95 Committee Report (Substituted) BACKGROUND The Public Utility Commission of Texas (PUC) was created in 1975 and is responsible for regulating electric and telephone utilities in Texas. The key functions of PUC include certifying a utility's initial operation, reviewing any new construction or changes to existing facilities, setting rates, and monitoring and auditing the operations of utilities under its jurisdiction. Currently, PUC has oversight of investor-owned utilities, electric cooperatives, river authorities, and local telephone companies. Cities have retained original ratemaking authority for electric utilities and cooperatives operating within their boundaries, but the commission reviews these rates on an appellate basis. The commission also reviews on appeal the rates of city utilities serving customers outside of their city limits. The Office of Public Utility Counsel (OPUC) was created in 1983 to represent residential and small business consumers before PUC. OPUC participates in many proceedings before PUC but concentrates its efforts on telephone and electric utility rate cases having the greatest impact on residential and small business consumers. OPUC has participated in major rate cases, but only a percentage of all cases before PUC since 1983. The PUC and OPUC are subject to the sunset act and will be abolished September 1, 1995 unless continued by the Legislature. PURPOSE The purpose of this bill is to continue the Public Utility Commission of Texas and the Office of Public Utility Counsel for a ten-year period and make statutory modifications. The modifications proposed by this bill: - apply standard language developed by the Sunset Commission to the statute relating to the PUC and OPUC; - provide the PUC with administrative penalty authority; - transfer the administrative hearings from the PUC to the State Office of Administrative Hearings; and - provide for other changes. RULEMAKING AUTHORITY In the committee's opinion, this bill grants rulemaking authority to the Public Utility Commission in the following sections: SECTION 9 - Section 1.026, Public Utility Regulatory Act of 1995, as enacted by S.B. 319, Acts of the 74th Legislature, Regular Session, 1995; SECTION 10 - Section 1.028; SECTION 11 - Section 1.029; SECTION 12 - Section 1.031; SECTION 14 - Section 1.036; SECTION 18 - Section 1.0513; SECTION 20 - Section 1.053; SECTION 21 - Section 1.101; SECTION 23 - Section 1.104; SECTION 31 - Section 2003.047, Government Code. In addition, under the general rulemaking authority already granted to the Public Utility Commission, rules may also be developed to implement other provisions found in this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 1.003, Public Utility Regulatory Act of 1995, as enacted by S.B. 319, Acts of the 74th Legislature, Regular Session, 1995 by adding Subdivision (18). Defines "trade association" for purposes of standard language developed by the Sunset Commission regarding conflicts of interest. SECTION 2. Amends Section 1.005. Applies standard language developed by the Sunset Commission making the commission subject to the open meetings law. SECTION 3. Amends Subtitle A, Title I, by adding Section 1.006. Specifies persons affected in a manner other than by setting of rates for purposes of conflict of interest requirements if $10,000 or ten percent of their business is the providing of fuel or utility-related products or services to a regulated or unregulated provider of telecommunications or electric services or an affiliate. SECTION 4. Amends Sections 1.021(c) and (d). Applies standard language developed by the Sunset Commission for the governor to appoint the presiding officer of the commission. Also updates standard Sunset language regarding non-discriminatory appointments to commission. SECTION 5. Amends Section 1.022. Updates the sunset review date for the Public Utility Commission and Office of Public Utility Commission to 2001 which provides for a six-year review. SECTION 6. Amends Section 1.023. (a) Removes age requirement for commission membership and updates standard Sunset language regarding public membership on the commission. (b) Removes requirement for commission members to post a bond. (c) Specifies that conflict of interest provisions apply to direct competitors of utilities. (d) Updates standard language developed by the Sunset Commission prohibiting lobbyists from serving on the commission or as the public utility counsel or as general counsel to the commission. (e) Applies standard language developed by the Sunset Commission prohibiting conflicts of interest for commission members and expands it to apply to the executive director and general counsel; persons connected with companies supplying fuel or utility-related products or services to regulated or unregulated utilities; persons with more than a ten percent or $10,000 interest in a related business or other affected entity; persons receiving funds from the commission; and persons with an interest in a mutual or retirement fund with more than ten percent of its holdings in a utility or utility competitor or supplier. (f) Provides for persons otherwise ineligible to serve because of interest in a related business or other affected entity to serve if they notify the attorney general and commission of the reason for ineligibility and divest ownership or control. (g)-(h) Applies standard language developed by the Sunset Commissions prohibiting certain trade association representatives or their spouses from serving on the commission or being employed at a salary group 17 or above. SECTION 7. Amends Section 1.024. Adds reference to utility competitors to existing provisions regarding prohibited conduct by commission members and employees. SECTION 8. Amends Section 1.025. Expands existing revolving door provisions to include employees of the State Office of Administrative Hearings (SOAH) involved in hearing utility cases. Updates standard language developed by the Sunset Commission regarding standards of conduct for commission employees. SECTION 9. Amends Section 1.026. Updates standard language developed by the Sunset Commission regarding grounds for removal of commissioners. Requires the executive director to notify the governor and attorney general of any potential ground for removal of a commission member. Applies standard language developed by the Sunset Commission regarding training requirements for commissioners. SECTION 10. Amends Section 1.028. Deletes language regarding required staffing and organization of the agency. Applies standard language developed by the Sunset Commission regarding separation of commission and staff functions. SECTION 11. Amends Section 1.029. Updates standard language developed by the Sunset Commission regarding the development of an intra-agency career ladder. Updates standard language developed by the Sunset Commission regarding employee performance evaluations. Updates standard language developed by the Sunset Commission regarding an agency equal employment policy that is annually updated, reviewed by the Texas Commission on Human Rights, and filed with the governor's office. SECTION 12. Amends Section 1.031. Applies standard language developed by the Sunset Commission regarding opportunity for public input before the commission. SECTION 13. Amends Section 1.035(a). Updates standard language developed by the Sunset Commission. Requires the commission to prepare an annual financial report that meets the reporting requirements in the appropriations act. SECTION 14. Amends Section 1.036. Updates standard language developed by the Sunset Commission regarding notice of complaint procedures. Applies standard language developed by the Sunset Commission requiring the commission to comply with laws relating to program and facility accessibility and requiring the commission to develop a plan for non-English speaking persons to have access to the commission's programs. SECTION 15. Amends Section 1.051. (b) Applies standard language developed by the Sunset Commission regarding non-discriminatory appointments to the position of public utility counsel. (d) Applies standard language developed by the Sunset Commission prohibiting conflicts of interest for the public utility counsel and expands it to include persons connected with unregulated utilities and other affected entities; persons with more than a ten percent or $10,000 interest in a related business or other affected entity; persons receiving funds from the commission; and persons with an interest in a mutual or retirement fund with more than ten percent of its holdings in utility or a utility competitor or supplier. (e) Updates standard language developed by the Sunset Commission prohibiting lobbyists from serving as the public utility counsel or general counsel for the office. (f) Applies standard language developed by the Sunset Commissions prohibiting trade association representatives or their spouses from serving as the public utility counsel or being employed at a salary group 17 or above. (g) Provides for persons otherwise ineligible to serve as the public utility counsel because of interest in a related business or other affected entity to serve if they notify the attorney general and the commission of the reason for ineligibility and divest ownership or control. SECTION 16. Amends Subtitle C, Title I, by adding Section 1.0511. Applies standard language developed by the Sunset Commission regarding grounds for removal of the public utility counsel. Affirms that an action of the office is valid even if it is taken when a ground for removal of the public counsel exists. SECTION 17. Amends Subtitle C, Title I, by adding Section 1.0512. Applies two-year revolving door provision to the public utility counsel and one-year revolving door for office employees for employment with a public utility or for representation in a matter in which the person was personally involved or responsible. Prohibits the counsellor and employees from representing clients before the commission in matters in which they were personally involved while they were with the office. SECTION 18. Amends Subtitle C, Title I, by adding Section 1.0513. Updates standard language developed by the Sunset Commission that requires the office to prepare an annual financial report that meets the reporting requirements in the appropriations act. Applies standard language developed by the Sunset Commission regarding information about office's functions. Applies standard language developed by the Sunset Commission requiring the office to comply with laws relating to program and facility accessibility and requiring the office to develop a plan for non-English speaking persons to have access to the commission's programs. SECTION 19. Amends Section 1.052. Prohibits the public utility counsel from having an interest in a utility competitor, supplier, or other affected entity for two years following termination of employment. SECTION 20. Amends Section 1.053. Applies standard language developed by the Sunset Commission regarding the development of an intra-agency career ladder, employee performance evaluations, a merit pay system, notice to employees of standards of conduct, and an equal employment policy statement. SECTION 21. Amends Section 1.101. Specifies that the commission's rulemaking authority extends to practice before the SOAH. Requires the commission to adopt rules to allow administrative law judges to limit the length of cases, limit discovery, identify issues and facts subject to discovery, and group parties (other than OPUC) to facilitate cross examination. Specifies that hearings not conducted by one or more commissioners must be heard by SOAH and authorizes the commission to delegate matters to the utility division of SOAH. SECTION 22. Amends Section 1.102(b). Deletes the requirement for the commission to audit each utility at least once every ten years. SECTION 23. Amends Subtitle D, Title I, by adding Section 1.104. Requires the commission to adopt rules governing settlements to resolve contested cases, while maintaining each party's right to hearing before the commission and judicial review of issues that remain in dispute. SECTION 24. Amends Section 1.202 Deletes provision for the railroad commission to review and approve gas utilities' applications to purchase natural gas from producing affiliates. Reletters sections. SECTION 25. Amends Section 1.251(b). Adds language requiring the PUC to consider whether a proposed utility sale will adversely affect the health and safety of customers or employees, will result in loss of Texas jobs or a decline in service, and whether the utility will recoup its investment and whether the transaction is in the public interest. SECTION 26. Amends Subtitle I, Title I, by adding Section 1.3215. Authorizes PUC to impose administrative penalties up to $5,000 for violations of the Act or a PUC rule or order. Establishes criteria for determining the amount of penalties and procedures for assessing penalties. Specifies that a penalty will not be imposed on accidental or inadvertent violations or other violations that have been corrected or is corrected no later than 30 days after receipt of a notice of violation. Specifies that persons who may be assessed a penalty have the burden of proving that the violation has been corrected and that the violation was accidental or inadvertent. Specifies that penalty amounts are deposited into general revenue and authorizes the executive director to delegate powers or duties under this section. SECTION 27. Amends Section 1.351(b). Shifts authority from the commission to the legislature for adjusting utility gross receipts assessment. SECTION 28. Amends Section 1.354. Removes language for the commission to notify comptroller of adjustment of assessment. Applies standard language developed by the Sunset Commission that requires the commission's and the office's funds to be managed in accordance with the State Funds Reforms Act. SECTION 29. Amends Subtitle J, Title I by adding Section 1.357. Adds language authorizing the commission to receive and spend federal funds from grants or other forms of financial assistance and exempts special accounts established under this section from funds consolidation. SECTION 30. Amends Section 1.401. Updates standard Sunset provision requiring the PUC to keep specified information, but not a file, about each complaint it receives and requires PUC to keep file about each written complaint. Requires PUC to provide information about its policies and procedures regarding complaint investigation and resolution. SECTION 31. Amends Subchapter C, Chapter 2003, Government Code, by adding Section 2003.047. (a) Requires SOAH to establish a utility division to perform contested case hearings for the commission. (b) Requires the division to hear cases not conducted by one or more commissioners. (c) Specifies that only the utility division may hear cases for the commission. (d) Specifies that administrative law judges must be licensed attorneys with at least five years general experience or three years experience in utility regulatory law. (e) Establishes the process for the commission to identify issues for the administrative law judge to address. (f) Requires joint rules between the commission and SOAH to provide for certifying to the commission of issues it is required by law to determine. (g) Allows the commission to change finding of fact or conclusion of law or to vacate or modify an order issued by an administrative law judge if it determines that the administrative law judge did not properly apply or interpret applicable law, commission rules or policies, or prior administrative decisions; the administrative law judge issued a finding of fact not supported by preponderance of evidence; or commission policy or prior administrative decision on which the administrative law judge relied is incorrect or should be changed. (h) Requires the commission to state in writing specific reason and legal basis for changing finding or conclusion. (i) Authorizes the administrative law judge to impose sanctions against parties in contested cases for specified actions. (j) Specifies sanctions including limiting discovery, charging expenses of discovery, and punishing offending party to same extent as a district court. (k) Requires hearings conducted by SOAH for the commission to be held in hearing rooms provided by the commission and requires the commission to provide the utility division access to its computer systems, databases, and library resources. (l) Specifies that SOAH is to charge the commission a fixed annual fee, negotiated biennially and subject to the governor's approval, rather than an hourly rate for services provided by the utility division. SECTION 32. Establishes a task force to oversee the transfer of the hearings division from the commission to SOAH. SECTION 33. Specifies transfer of existing hearings personnel and equipment, excluding central records on September 1, 1995 and provides employment protections for one year thereafter. Specifies other implementation provisions relating to the transfer of the hearings division.. SECTION 34. Specifies that provisions related to administrative penalties apply only to violations occurring on or after the effective date of the act. SECTION 35. Specifies that settlement process applies only proceedings in which a final order has not been issued before the effective date of this Act and does not apply to an electric utility merger proceeding filed before January 1, 1995 in which a final order has not been issued. SECTION 36. Specifies that standard Sunset language regarding requirements for membership on the commission or employment as executive director or general counsel applies only to persons appointed or hired on or after the effective date. SECTION 37. Specifies the effective date of the Act as September 1, 1995. SECTION 38. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE 1. Deletes a provision contained in the original version amending the legislative policy and purpose that recognized that wholesale electric service is becoming more competitive. 2. Deletes provisions contained in the original version redefining "rate" to specify that rates allowed by flexible pricing not be considered rates and redefining "service" to prohibit the resale of electricity, except for voluntary transmission wheeling services that are not regulated by the Federal Energy Regulatory Commission. 3. Deletes the provisions contained in the original version that would have expanded the revolving door policy to apply to utility affiliates and utility competitors, suppliers or other affected entities. 4. Deletes the provision contained in the original version that would have limited the commission's authority to require reports on utility-affiliate transactions to the extent that the transactions are subject to the commission's jurisdiction. 5. Adds a provision not contained in the original version to require the PUC to consider several factors in determining whether a proposed utility sale is in the public interest. 6. Adds a provision not contained in the original version providing the PUC with authority to assess administrative penalties under certain circumstances against persons violating the Act or a PUC rule or order. 7. Adds a provision not contained in the original version allowing the PUC to receive and spend federal funds. 8. Adds language not contained in the original version requiring hearings conducted by SOAH for the commission to be held in hearing rooms provided by the commission and requiring the commission to provide the utility division access to its computer systems, databases, and library resources. 9. Adds language not contained in the original version specifying that SOAH is to charge the commission a fixed annual fee, negotiated biennially, rather than an hourly rate for services provided by the utility division. 10. Provides the transfer of the PUC hearing division to occur on September 1, 1995, instead of September 1, 1996 as specified in the original version. 11. Deletes a provision contained in the original version that would have repealed a civil penalty provision for violations of the Act under the jurisdiction of the Railroad Commission that result in pollution. 12. Deletes provisions contained in the original version redefining "electric utility" or "utility" to recognize Exempt Wholesale Generators and Power Marketers and defining "integrated resource planning," "lowest reasonable system cost," and "qualifying facility." 13. Deletes a provision contained in the original version specifying the legislative policy concerning regulation of the electric utility industry. 14. Deletes a provision contained in the original version providing for and specifying an integrated resource planning process. 15. Deletes a provision contained in the original version providing for flexible pricing by an electric utility. 16. Deletes a provision contained in the original version providing for partial rate deregulation of electric distribution cooperatives. 17. Deletes a provision contained in the original version providing for a utility to include payments to affiliated interests in charges to consumers without findings of reasonableness and necessity as long as there is a mechanism to refund the charges if the findings are made. 18. Deletes a provision contained in the original version that amends the exclusive original jurisdiction of municipalities. SUMMARY OF COMMITTEE ACTION Pursuant to public notice posted on April 5, 1995, HB 3164 was considered by the Committee on State Affairs in a public hearing on April 10, 1995. The Chair laid out HB 3164 and explained the bill. The following person testified for the bill: Robert Reilly representing New Electric Wholesalers of Texas. The following persons testified against the bill: Larry Francis representing himself; Nanette Williams representing herself; Charles S. Groff representing himself; Mark Shilling representing himself; Joe D. Gunn representing Workers; Jim Boyle representing IBEW; Stephanie Kroger representing Texas Industrial Energy Consumers; Mark Leypoldt representing himself; Peggy Venable representing Texas Citizens for a Sound Economy; Frank D. Griffin representing Goose Creek Consolidated Ind. School District; Jim Marston representing himself; Janee Briesemeister representing Consumers Union; Jay Doegy representing City of Arlington; Burl Buchanan representing himself; Mary Rhodes representing herself. The following persons testified neutrally on the bill: Marianne Carroll representing Newtex; Jim Morriss representing Texas Electric Cooperatives, Inc.; Tom Standish representing the Association of Electric Companies of Texas; Kent Caperton representing the Association of Electric Companies of Texas; Mike Williams representing himself; Mike Ozymy representing the Association of Electric Companies of Texas; and Mark Mosely representing the Association of Electric Companies of Texas. The Chair closed on HB 3164. The Chair referred HB 3164 to a subcommittee consisting of the following members: Seidlits, Chair; Black; Bosse; Carter; Danburg; D. Jones; S. Turner. After being recalled directly from subcommittee, the committee considered HB 3164 in a formal meeting on May 5, 1995. The Chair laid out HB 3164. The committee considered a complete substitute for the bill. The substitute was adopted without objection. The bill was reported favorably as substituted with the recommendation that it do pass and be printed, by a record vote of 13 ayes, 0 nay, 1 pnv, 1 absent.